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E-payments thrive one year after demonetisation

November 13, 2017

MAJOR economy-related moves by governments in India have for decades drawn two kinds of responses, especially on the anniversaries of those events. One is gushing praise from the ruling group and its supporters, who organise massive events to glorify the anniversary. And the other is downright condemnation by the opposition parties, who heap abuse on the ruling front leaders.

Last week was no different as the National Democratic Alliance (NDA) government, led by Prime Minister Narendra Modi, celebrated the first anniversary of its dramatic and unforeseen move to demonetise the Indian currency by withdrawing a mind-boggling 86 per cent of currency notes — of Rs500 and Rs1,000 denomination — from circulation.

But while Modi and his team of ministers celebrated the anniversary, the opposition — ranging from the Congress to the communists — launched a tirade against the decision and lashed out at the government.

Former prime minister and Congress leader Manmohan Singh, who has been maintaining a low profile ever since he was replaced by Mr Modi, was vociferous in his attack on his successor.

“Demonetisation has proved to be mere bluster to reap political dividends while the real offenders have escaped,” declared Singh. “This was organised loot and legalised plunder.”

According to him, the move resulted in India’s import bills soaring; India’s imports from China alone surged by 23 per cent year-on-year in the first half of the current fiscal year because of demonetisation and the introduction of GST, Mr Singh said.

The former prime minister was in Gujarat — on the first anniversary of the demonetisation — where both the Bharatiya Janata Party (BJP) and the Congress will be facing the electorate over the next few weeks.

Of course, many economists, academicians and policy-planners continue to back Mr Modi’s demonetisation efforts, which many believe has led to major transformations in the country.

Google has already launched its Unified Payments Interface-based payments app in India while Apple, Google and WhatsApp also plan to unveil their payment systems

One of the most vocal backers of demonetisation is Nandan Nilekani, the IT whizz-kid, who is now the chairman of Infosys Ltd, and who also fought parliamentary elections in 2014 on a Congress ticket from Bangalore (but lost to his BJP rival).

Last week, Mr Nilekani, who also formerly headed the Unique Identification Authority of India, was ecstatic about the impact of demonetisation. “While Nov 8, 2016 is etched in our memories as the day we switched to cashless, it was just the start,” he said. “Digitisation was always going to be a long process, and we still have a way to go. But demonetisation was a defining moment in India’s journey to a less-cash economy.”

He said that while India was ahead of the world in designing a solution for digital payments, there was no political will or priority to push it. But demonetisation and the urgency to find alternatives to cash brought digitisation and cashless payments into sharp focus, Mr Nilekani said.

Indeed, demonetisation has driven millions of consumers and hundreds of thousands of traders and merchants to adapt to the new technologies that have now become part of daily life.

A relatively little-known company, Paytm, which was set up in 2010, suddenly shot into prominence after demonetisation when it began offering alternative (and non-cash) methods of payments. Its payment service has become hugely popular around the country — more than five million merchants accept Paytm’s payment system, which now has 270m users.

Importantly, it has also attracted top global investors. It recently got a $1.4 billion equity funding from Japanese major SoftBank. It is also backed by China’s Alibaba Group and its affiliate Ant Financial.

Of course India is a major thrust market for Alibaba, and the company plans to take on global rivals such as Amazon, which is also expanding its reach in India. Alibaba has invested more than a billion dollars in acquiring payment services across Asia including South Korea, the Philippines and Thailand, and aims to offer stiff competition to Amazon in India.


OTHER international majors are also rushing in, either investing in Indian ventures or launching their own outfits.

Amazon has entered the fray with its Amazon Pay e-wallet, which got clearances from the Reserve Bank of India.

Google has already launched its Unified Payments Interface (UPI)-based payments app, Tez, which has been specifically tailored for Indian consumers. (The UPI, which is part of the government’s move to make India ‘cashless’, powers multiple bank accounts into a single mobile application, ensuring seamless fund routing and merchant payments).

According to Google CEO Sundar Pichai, there were more than 7.5m downloads of Tez during the first 40 days after the launch.

Even Apple Pay is going to be launched by the American major in a few weeks, Eddy Cue, a senior executive of the company, who was here recently, confirmed at a meet.

Close on the heels of Apple, its international rival and major South Korean telecom firm plans to launch its Samsung Pay in India soon.

Facebook-owned WhatsApp is also planning to launch its UPI-based payment system in India next month. The company is believed to be in talks with leading Indian banks to incorporate their in-app payments feature in WhatsApp.

And leading international payments major, PayPal, which last week launched its domestic operations in India (though it has had a long presence in India, but without an office), is also bullish about the prospects.

“India’s digital payments journey is on a high growth trajectory and we are proud to be a part of it,” says Rohan Mahadevan, CEO of PayPal. “We are excited about our prospects in a market that is highly inspirational and aspirational.”

The National Payments Corporation of India (NPCI) said last week that UPI transactions touched the nearly 90m mark in October, and the total value topped Rs750bn.

The NPCI developed the now hugely popular Bharat Interface for Money, which uses the UPI for money transfers.

Indeed, a year after devaluation of the rupee all these new and alternative methods of payments are gaining massive popularity across the country.

Published in Dawn, The Business and Finance Weekly, November 12th, 2017